Delta Airlines 2008 Annual Report Download - page 58
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Table of Contents
Index to Financial Statements
For 2008, aircraft fuel and related taxes, including our Contract Carriers, accounted for 28% of our total operating expense. Aircraft fuel and related
taxes increased 53% in 2008 compared to 2007 primarily due to higher average fuel prices. Fuel prices averaged $3.16 per gallon, including fuel hedge losses
of $65 million, for 2008 compared to $2.24 per gallon, including fuel hedge gains of $51 million, for 2007.
In the Merger, we assumed all of Northwest's outstanding fuel hedge contracts. On the Closing Date, we designated certain of Northwest's derivative
instruments, comprised of crude oil collar and swap contracts, as hedges in accordance with SFAS 133. As of December 31, 2008, these contracts had an
estimated fair value loss of $163 million. The remaining Northwest derivative contracts that were not designated as hedges had an estimated fair value loss of
$318 million. We will mark-to-market the derivative contracts not designated as hedges on a monthly basis in aircraft fuel expense and related taxes. The
mark-to-market on these contracts may result in increased volatility in earnings compared to our fuel hedge contracts designated under SFAS 133, for which
changes in underlying commodity prices result in valuation changes that are recorded in accumulated other comprehensive income.
In September 2008, one of our fuel hedge contract counterparties, Lehman Brothers Holdings, Inc. ("Lehman Brothers"), filed for bankruptcy. As a
result, we terminated our fuel hedge contracts with Lehman Brothers prior to their scheduled settlement dates. Additionally, during the December 2008
quarter, we terminated certain fuel hedge contracts with other counterparties to reduce our exposure to projected fuel hedge losses due to the decrease in crude
oil prices. In accordance with SFAS 133, we recorded an unrealized loss of $324 million, which represents the effective portion of these terminated contracts
at the date of settlement, in accumulated other comprehensive income on our Consolidated Balance Sheet. These losses will be reclassified into earnings in
accordance with their original contract settlement dates through December 2009. The ineffective portion of these contracts at the date of settlement resulted in
an $11 million charge.
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